INFORMAL ECONOMY IN SMALL STATES
SMALL BRANCHES CONFERENCE: 2 -
had started to shrink in 2007-8 so the Maldives changed to a combination of direct taxation and sales tax in 2009-10. Tourism and fisheries are the main source of income but there is still a gap. The main policy is to develop a healthy person so that they can contribute to the economy. Hon. Wilkie Rasmussen, MP, of the Cook Islands focused on remote communities where there is no form of employment and whose income arises from the production of arts and crafts. These they sell informally to dealers and at this point the goods are transferred into the formal economy. If aid was offered to the communities who produce goods in this way, then the trade could
be made taxable. But this is the only way for them to derive income so it is encouraged by government – in some situations it is better to “turn a blind eye”. Mr Rasmussen also added that
the European Union can lift import levies on imports from small countries and this helps small countries to compete. Deputy David de Lisle of
Guernsey asked the panel where it stood on competition from inferior imports which supplant goods produced locally because they are cheaper. He also asked, if it is proposed to encourage the informal economy to become part of the mainstream, how credit and investment can be generated? Deputy Langlois responded
that in this age of globalization, care should be taken over any form of protectionism. Governments must not confuse promoting diversification with resistance to change. Nevertheless, it is necessary to find ways to tax internet sales.
As regards aid to entrepreneurs,
the most important guidelines are to provide training and education, cut down regulation and establish credit unions and mutual help groups. Mr Penn suggested that a bureau
linked to a bank be established to develop strategies and then seek finance for local entrepreneurs.
Growing industries Hon Phillip Short, MLA, of the Falkland Islands made it clear that, where the solution to the informal economy is concerned, there is no “one size fits all” answer. What concerns one country does not concern another. Hon. Ellio Solomon, MLA, of the
Cayman Islands suggested that governments should understand where the informal economy can contribute to the economy and encourage that activity. They should encourage people to develop new services and take advantage of new technologies and make sure the activity comes to their own country. After all, the Microsoft empire had started out as a business run on an informal scale. Just because one can’t tax or measure an activity, does not automatically make it bad. Deputy James Reed of Jersey
agreed that there are positive aspects to the informal economy, for example, it can support and raise the income of individuals. It is necessary to look beneath and ask what makes those individuals seek out such work. Governments encourage their people to look after themselves and benefit themselves. The question is how to transfer
this activity to the mainstream. We have to ensure that those in the informal economy are provided for. Another consideration is ethics: Do the raw materials for an activity come from a country where there is child labour, for example? Deputy de Lisle added that there
has been radical restructuring of production in many key industries through globalization. Outsourcing by developed countries and sub- contracting has allowed services to be provided by those in receipt
of lower wages – the developed countries have gained while the developing countries have the burden of supporting the workers in the countries providing the outsourced services. In developed countries the resulting job losses have occurred among the unskilled who now seek to sustain their income in other ways. The developed countries are talking of regulating the informal economy, but they themselves are ceding work to countries overseas and adding to the informal economy elsewhere, benefitting women in particular. Deputy Langlois said he did not
feel it was possible to turn the clock back, as a small country Guernsey would be unable to change this trend.
Encouraging enterprise Sen. Ian Gorst of Jersey cautioned against confusing two separate issues. The encouragement of technology and innovation is very different from the informal economy. If Members are saying that the informal economy is a good thing, then governments should look again at the thresholds for social security contributions et cetera, more easily to enable the integration of the informal economy into the mainstream economy. This point was endorsed byMr Penn. Hon. Dennis Lister, MP, of
Bermuda considered that it is important to assess the situation both from the government perspective and from the individual’s perspective. If, for example, the practice of washing cars is formalized into the mainstream economy, the result would be a new service provided by car parks. The activity had previously benefitted a different group of people, but they would become unemployed. Mr Penn advised that the
answer is to provide a location for informal businesses to conduct their business, so that the same people are encouraged to continue. Mr John Hargreaves, MLA,
of the Australian Capital Territory agreed that the human factor is very important, and governments should take proportionality into account. Hon. Donte Hunt, MP, of Bermuda
advised that context is the primary issue. In a strong economy with full employment there is not really an issue. In a high unemployment area one must consider what else those involved in the informal economy could do to support themselves. One must consider what they would turn to and what that would cost. Of course, greed could also be
responsible for a proportion of the informal economy, but the greatest cause is necessity. People are hurting, and if they are hurt financially they will do anything to feed their children, even if what they do is considered to be bad.
A human approach Deputy Langlois concluded that the last few contributions were very relevant and that there is a need for compassion. If government is healthy, then the informal economy can lead on to entrepreneurship. Just because a country is wealthy does not mean that the informal economy disappears, as there is the question of relative poverty. Governments should monitor the situation and take tax policing action if the economy suffers damage as a result of the informal economy. Mr Penn reminded the plenary
that “necessity is the mother of invention”. When people are concerned how they are going to pay the rent then they will do what is necessary. People will find a way to earn a living. There is no ‘one size fits all’ solution. Governments need to know the facts. Could there be an even worse social issue if the informal economy is suppressed? There is a need to capture information to inform policy.
Hon. Sharon Halford, MLA, of
the Falkland Islands, from the Chair, agreed that there had been a very informative and interesting debate. While most involved in the informal economy did so out of sheer need, others participated out of greed. She posed a final question as to whether the raising of the retirement age in many countries might force more people into the informal economy who, because of their age, could not find paid employment?
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